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• Q1 2011 Revenues at EUR 70.4 Million;
• Q1 2011 IFRS Pro Forma Operating Income of EUR 0.9 Million (1.3% of Revenues);
• Q2 2011 Revenues Expected to Range between EUR 72 Million and EUR 77 Million with IFRS Pro Forma Operating Income between 1% and 4% of Revenues.

Q1 2011 IFRS Financial Results
Revenues in Q1 2011 totaled EUR 70.4 million, up 11% year-on-year, after EUR 63.2 million in Q1 2010 and EUR 79.4 million in Q4 2010. This result is in line with guidance of between EUR 70 million and EUR 75 million. IFRS pro forma operating income, excluding stock-based compensation and amortization & impairment of goodwill & acquisition-related intangible assets, amounted to EUR 0.9 million in Q1 2011 or 1.3% of revenues, also in line with guidance of between 0% and 4% of revenues. This compares to Q1 2010 IFRS pro forma operating income of EUR 2.7 million or 4.3% of revenues, and to Q4 2010 IFRS pro forma operating income of EUR 4.3 million or 5.4% of revenues. Year-on-year, the pro forma operating income reduction is largely due to lower gross margins due to changes in product and customer mix, as well as higher development expenses. These effects could not be fully compensated by the year-on-year increase in carrier infrastructure and Ethernet access revenues.

There was an IFRS operating loss in Q1 2011, amounting to EUR 0.3 million, after an operating income of EUR 1.9 million in Q1 2010. The key driver for this unfavorable development is the above-mentioned decrease of pro forma operating income.

The IFRS net loss amounted to EUR 2.3 million in Q1 2011, after a net income of EUR 2.4 million in Q1 2010. This significant reduction was largely driven by the development of the operating result described above, as well as net foreign currency exchange losses of EUR 1.6 million in Q1 2011 after respective gains of EUR 1.1 million in Q1 2010. Basic and diluted IFRS net earnings per share were EUR -0.05 in Q1 2011 after EUR +0.05 in Q1 2010.

“At EUR 70.4 million, our Q1 2011 revenues are in line with guidance and 11% above the levels seen in Q1 2010. Quarter-on-quarter, the 11% revenue decline vs. Q4 2010 is due to weak carrier infrastructure and enterprise business, following our strong growth in H2 2010 with revenues up 21% vs. H1 2010. Our pro forma gross margin decreased from 42.5% in Q4 2010 to 41.2% in Q1 2011, due to variations in product and customer mix. In Q1 2011, our pro forma operating margin came in at 1.3%, also in line with guidance, and demonstrates our focus on managing operational costs despite major incremental investments in our development activities. To a large extent, these activities have been driven by our strategic partnership with Juniper Networks, with a clear focus on quickly integrating our new agile optical core networking functionality into Juniper Networks’ recently announced PTX Series Packet Transport Switch,” commented Jaswir Singh, chief financial officer & chief operating officer of ADVA Optical Networking.

Q2 2011 Outlook
In light of the recent events shaping current market conditions and those that cloud the road forward, ADVA Optical Networking remains cautious about revenue development for the year. In Q2 2011, the Company expects revenues to range between EUR 72 million and EUR 77 million, and anticipates pro forma operating income of between 1% and 4% of revenues. Further, ADVA Optical Networking notes that it will continue to perform detailed quarterly reviews of the expected business development in respect of all intangible assets, including capitalized research and development expenses. These reviews may result in non-cash impairment charges in Q2 2011 and beyond. The pro forma operating income guidance provided above excludes any such potential impairment charges. ADVA Optical Networking will host its annual shareholders’ meeting on May 16, 2011, in Meiningen, Germany, and will publish its Q2 2011 financial results on July 21, 2011.

“Due to mixed Q1 2011 results and our commitment to profitable growth, ADVA Optical Networking is focusing on growth beyond the current weakness, while managing our costs more aggressively than over the past twelve months. We continue to work on multiple business opportunities. In order to compete effectively, at the same time we are investing in innovation and are trying to leverage existing Company infrastructure. ADVA Optical Networking’s ongoing focus on innovation resulted in a range of new products and solutions in Q1 2011. In addition, one of our transitional focus areas started two years ago was to increase revenues from software and services, helping us to strengthen our gross margins. Our software product portfolio and services teams have grown significantly and now help us to realize over 10% of our revenues. We believe that we can continue to grow software and services aggressively over the next years in order to support our key focus on profitable growth,” stated Brian Protiva, chief executive officer of ADVA Optical Networking.

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